There are some steps to follow while creating Mail merge Template.
1. First of all create .xml file or convert word document file to .xml file.
2. In MS CRM, go to Settings.
3. Click on Template on the left Navigation of form.
4-Then go to Mail merge Template and double click.
5. Enter the Name of Mail merge Template.
6. Select Associated Entity.
7. Upload .xml (Word Document Xml file) and click on attach.
8. Click on Save Button and then select Data Fields that you want to populate from target Entity.
9- Change the ownership from Individual to Organization.
10-Run from Target (Associated Entity).